Cost Orders in the Employment Tribunal: Dowding -v- The Character Group PLC

It is no secret that recovering costs in the Employment Tribunal (“ET”) is very rare. According to the ET and Employment Appeal Tribunal (“EAT”) Annual Statistics for 2023/24, out of 97,489 cases issued in the ET, just 192 cost awards were made. 153 of those cost awards were in favour of respondents, and just 39 were in favour of claimants, the median amount of costs awarded being £3,000.

Pursuant to Rule 76(1) of the ET Rules of Procedure 2013, an ET may make a costs order where it considers that:

(a) party (or that party’s representative) has acted vexatiously, abusively, disruptive or otherwise unreasonably in either the bringing of the proceedings (or part) or the way the proceedings (or part) have been conducted; or

(b) Any claim or response had no reasonable prospect of success; or

(c) A hearing has been postponed or adjourned on the application of a party made less than 7 days before the date on which the relevant hearing begins.

Rule 78(1)(a) gives ETs the power to order the paying party to pay the receiving party a specified amount, not exceeding £20,000 and Rules 78(1)(a) allows ETs to order the amount to be paid to be determined by way of detailed assessment.

Rule 78(3) makes clear that in the event that an ET orders a detailed assessment of costs rather than ordering a set amount of costs itself, the costs may exceed £20,000.

Rules 80(1) also gives ETs the power to make a wasted costs order against a representative where the party has incurred costs:

(a) As a result of improper, unreasonable or negligent act of omission on the part of the representative; or

(b) Which, in the light of any such act or omission occurred after they were incurred, the Tribunal considers it unreasonable to expect the receiving party to pay.

To avoid claims or responses (or part of a claim or response) that have little reasonable prospect of success advancing, ETs have the power at a Preliminary Hearing to make an order requiring the paying party to pay a deposit not exceeding £1,000 to continue that allegation or argument of their claim or response (Rule 39(1)).

Costs on the indemnity basis vs costs on the standard basis

ETs will usually order costs on the standard basis, meaning that in order to be recoverable, costs must have been reasonably incurred (including amount) and proportionate.

In rare cases, an ET may order costs on the indemnity basis. The difference is that there is no proportionality test, and it is assumed that costs claimed have been reasonable and proportionate. The onus is on the paying party to show that the costs claimed are unreasonable.

The recent case of Dowding -v- The Character Group PLC [2024] EAT 153

Mr Dowding worked as The Character Group PLC’s Group (“the Company”) Financial Director. Mr Dowding was subject to disciplinary proceedings which eventually led to his dismissal from the Company.

Following his dismissal, Mr Dowding issued a claim for automatic unfair dismissal for whistleblowing on the basis that he had made protected disclosures.

During his employment, Mr Dowding had a discussion with one of the Managing Directors (“MD”) about the Company’s requirement under section 228 of the Companies Act 2006 (“the Act”) to make copies of directors’ service agreements available for inspection. He then sent a follow up email to the MD, and a few days later sent an email to the Board stating that it was in breach of its duty under section 228 of the Act, citing a “technical breach.” Section 228(6) of the Act states that a person guilty of an offence is liable on summary conviction to a fine.

Mr Dowding relied on his discussion with the MD and his emails to him and the Board as protected disclosures.

ET Judgment

The ET held that Mr Dowding’s disclosures relied on were not protected disclosures because he did not believe them to be in the public interest. The ET went on to find in the alternative that, if Mr Dowding did hold such a belief, it was not reasonably held.

The ET determined that Mr Dowding’s claim for automatic unfair dismissal based on the protected disclosures failed, and that even if it was wrong about whether the disclosures qualified as protected disclosures, there was no causal link between the disclosures and Mr Dowding’s dismissal. The ET concluded that Mr Dowding’s dismissal was a fair dismissal by reason of a breakdown in trust and confidence.

The Company applied for costs and at a subsequent costs hearing, they awarded costs against Mr Dowding. In making such cost orders, the ET considered that Mr Dowding had “turned down, unreasonably, a £200,000 offer, wherein the respondent had expressly stated the whistleblowing claims to be wholly without merit…in addition, the nature and gravity of his conduct was extremely serious. He gave dishonest evidence under oath. He made very serious allegations of fraud against at least 2 other employees causing actual or risking significant harm to reputation and/or livelihood to those individuals.”

The ET ordered Mr Dowding to pay the Respondent’s costs, capped at £127,563.70 or 21% of its overall £600,000, subject to detailed assessment on the indemnity basis by the County Court. The Company was also awarded £20,000 in respect of the costs of the costs hearing itself.

EAT Judgment

Mr Dowding appealed against the ET’s judgment that he had not been automatically unfairly dismissed, and also its costs decision. The EAT upheld the ET’s judgment in respect of the automatic unfair dismissal.

In respect to the costs appeal, the EAT concluded that under the Employment Tribunal Rules of Procedure 2013, the ET does have the power to direct that a detailed costs assessment be on the indemnity basis; but the tribunal had not shown whether, or if so, why, it had decided that such a direction was warranted in this case.

In respect of the costs awarded for the costs hearing, the EAT stated “there is no suggestion that the tribunal then also considered whether, having regard to the nature, gravity and effect of the relevant conduct, an award of at least £20,000 was in any event appropriate. Or if it did, its reasoning is not explained.”

The EAT therefore allowed Mr Dowding’s appeal and remitted the case to the same ET for reconsideration of both costs awards.

For further information or to discuss a potential employment law or discrimination claim, please contact our specialist employment solicitors on 0207 3950 5234 or info@rllaw.co.uk. We are ranked as a ‘Leading Firm’ in the Legal 500 and Chambers and Partners independent guides to the UK Legal Profession.

24 December 2024